In recent times, the enterprise market is on the rising trend, in both size and quality. Along with that, business consolidation activities were also encouraged to take place excitingly. So, what is business consolidation? Let’s find out with LSX!
- 2020 Enterprise Law
Definition of business consolidation
Hence the regulation in Clause 1, Article 200, 2020 Enterprise Law; business consolidation is a case where two or more companies (referred to as amalgamated companies) may merge and merge into a new company (referred to as consolidating companies); by transferring all assets, rights and obligations and legitimate interests to the consolidated company, and at the same time terminate the existence of the consolidated companies.
In fact, the new company does not have to have the same legal status as the old incorporated company. The reason is that, after business consolidation, any enterprise has more or less changes in organizational structure to match the actual operation of their business. Therefore, the new company must have the same form as the old one; due to the effort in limiting the lack of uniformity between the two as in 2005 Enterprise Law is unnecessary.
Although the 2020 Enterprise Law does not stipulate conditions on the type and legal capital of consolidated companies; however, the consolidated company must ensure compliance with the provisions of the Competition Law on corporate consolidation.
The corporate merger case can be formulated as follows:
- A is a consolidated company 1
- B is a consolidated company 2
- C is the consolidated company (of A and B).
Legal consequences after consolidation
Firstly, business consolidation creates a new company (the incorporated company) and terminates the existence of the merged companies.
Secondly, the consolidating company enjoys lawful rights and interests and is responsible for performing all obligations of the consolidated companies.
Thirdly, the companies participating in the consolidation have the same decision-making power in the Board of Directors of the consolidated company depending on the amount of capital contributed by each party.
Lastly, the consolidated company shall conduct business registration following the provisions of the Enterprise Law 2020.
Implication of business consolidation
Accordingly, business consolidation brings businesses and the economy a lot of benefits. Specifically:
Firstly, business consolidation improves the financial situation of the business. Basically, the consolidated company will increase the capital used for the business, improve access to capital, share risks and enhance transparency.
Secondly, business consolidation consolidates the market position for enterprises. On this condition, the enterprises may increase market share, increase customers, take advantage of customer relationships, take advantage of the ability to cross-sell services, improve competitiveness.
Thirdly, business consolidation will shorten the short-term cost. In fact, it reduces duplication in the distribution network, saves operating costs, saves administrative and management costs.
Fourthly, business consolidation can take Take advantage of the long-term scale. Indeed, it optimizes technology investment results, takes advantage of the successful experience of the parties, reduces the overall cost for each product unit, etc.
For the economy
From the restructuring of enterprises, the consolidation towards restructuring the economy, through this activity weak enterprises will be eliminated or reorganized more effectively.
The consolidation contract must be sent to the creditors and notified to the employees within 15 days from the date of approval.
There are many distinctive features between the two. In short, business consolidation creates a new business while ending the existence of the consolidated businesses; while the merger of enterprises preserves the existence of the merged enterprise and terminates the existence of the merged enterprises.